I am now a year into my PhD (three more to go), and as my topic has shifted a bit over that period, I thought it would be useful to outline what I’m researching.


The background to my research is that countries like the UK need to significantly increase supply of low carbon electricity, in order to reduce greenhouse gas emissions (including from heating and transport which currently rely on gas and oil respectively). Wind and solar generation are likely to form the majority of this increase given their affordability relative to alternatives. However, governments are largely leaving it to the market to determine what mix of wind, solar and other technologies (including storage) to deploy (something I am not looking to endorse or challenge).

Building a wind or solar generator requires significant (albeit decreasing) up front costs which must be funded by capital providers (equity and sometimes debt). This is to be paid back over the 20–30 year life of the project. That payback is derived from three components: wholesale market revenue, risk mitigation (e.g. insurance, hedges, forward sales, feed-in tariffs), and operating expenses. These are shown in the following diagram:

The revenue from the sale of electricity into the wholesale electricity market is highly uncertain, and options for risk mitigation are currently limited. This leads investors to demand a high expected return on capital, which reduces the viability of projects and the rate of deployment.

My research

My research seeks to increase the amount of wind and solar capacity that is financially viable, by developing an understanding of:

1. the risk of wholesale market revenue
2. the opportunities for mitigating this risk
3. investor perception of the resulting risk and impact on required cost of capital

I am primarily looking at this from the perspective of individual market participants: project developers, risk mitigation providers and investors. I am also interested in the role of government in reducing or mitigating the risk.

I am focussing on wholesale solar and wind in Great Britain. (I refer to Great Britain rather than United Kingdom as Northern Ireland is in a separate electricity system.) My reason for focusing on solar and wind is because these are growing so rapidly, and their intermittency (you can’t choose when the wind blows or the sun shines) adds extra financial risk. My reason for focusing on Great Britain is because I know it best — I’m sure much of what I’ll find would also apply to other market-based systems, especially those without abundant hydroelectric storage. My reason for focusing on wholesale generation is that retail generation (eg solar panels on the roofs) is usually installed for a different set of reasons (eg subsidies, to avoid paying expensive retail prices).

I should also note that I’m not looking at the risks of construction or operating costs. These obviously matter, but other researchers have more ability to explore these. I will, however, consider the risk that technical issues may prevent a solar or wind generator from generating, as this affects their wholesale market revenue, and is relevant to how they should mitigate their risk.

Finally, I’m assuming that in the future there will continue to be a wholesale electricity market, into which participants can buy and sell. I can’t rule out other possibilities, but I can’t imagine what they might be.

My Research Structure

My thesis will include a mix of background and new research.

The background will provide an overview (including reference to existing literature) on:
- Understanding uncertainty and risk
- How the wholesale electricity market works in Great Britain
- The uncertainties that affect wholesale market revenue
- Models of electricity markets and their usefulness
- Risk mitigation (eg insurance, hedging)
- Risk mitigation techniques in electricity markets (including insurance, feed-in tariffs, power purchase agreements)
- Investment theory (eg cost of capital)
- Solar and wind investment history

The new research will be made up of:

  1. Building a model to provide insight into the wholesale market revenue risk. This model will be used to assess the impact of risk mitigation options, and will be used to guide the interviews.
  2. Interviewing developers and risk mitigation providers about the availability and usefulness of different risk mitigation techniques.
  3. Interviewing developers and investors about how they perceive wholesale market risk, and the impact of risk mitigation on their required return on investment.

What if you’d like to talk to me about this?

Please do get in touch. I’d hate to be spending time on research that no one cares about, so I really appreciate opportunities to talk about my research with people, especially those working in the area.

What will I do after the PhD?

I’m not sure — ask me again when I’m much closer to finishing.

Fascinated by what makes societies and markets work, especially in sustainable energy. http://guylipman.com.